An
initiative aimed at examining the role of Italy and planning our future

Proposal for intervention aimed at giving Italy a leading

position in the “digital media” sector

This
document was drawn up by Digital Media in Italia (dmin.it), an interdisciplinary,
open, non-profit group, which aims at defining and proposing areas of
intervention which will allow Italy to gain a leading role in the exploitation
of the ‘digital media’ phenomenon.

The professionals who are taking part
in dmin.it are making available their own skills, views and experiences
of their own free will; any information included in this document is
therefore not binding for the companies within which such professionals
work.

In this first
document by Digital Media in Italia (dmin.it), we are setting out a
proposal aimed at maximising the circulation of digital media[1]. If put into practice, this proposal
could lead to the enjoyment of the benefits inherent in the process of digital
convergence but would also contribute to make Italy a country of reference
within this sector.

The document
identifies three areas of intervention: broadband network services, services
for the distribution and use of content, and online payment services.
Specific courses of action are specified for each area, their technological,
economic and regulatory aspects are analysed, and their potential advantages
for the national community are identified.

Dmin.it’s proposal is based on two principles:
(i) to preserve the correct dynamics of competition in those markets where
suppliers of services, content and payment systems operate, which should maintain
ample freedom in adopting those technological solutions which mostly suit
the development of their business and (ii) to facilitate the widest use of
content and services by everyone through suitable access and interoperability
criteria and adequate regulatory and co-operative tools.

Said criteria
can basically be described as follows:

Content: suppliers
must also offer said content with interoperable Digital Rights Management
(DRM) technology, the technical specifications of which will be identified
by the relevant national Authorities. The interoperable DRM technology thus
specified, together with the relative protocols, standards and governance
criteria, will provide a nationally-adopted platform which will be able to
offer various security levels aimed at satisfying the operators’ different
requirements. Said platform will guarantee the following:

For each transmission mode, the consumer can access all distributed
content by means of a single open, interoperable device with a functionality
similar to that of a decoder; the user can therefore choose said device among
those manufactured according to the specifications of each platform available
on the market for electronic consumables;

Any supplier will be able to offer content
by choosing the most suitable business model (for example, clear distribution,
pay TV, pay-per-view, etc.) confident that the nationally-adopted DRM technology
is compatible with a wide range of user terminals. Should suppliers also use
proprietary platforms with an obligation to also distribute the content by
means of modalities based on the nationally-adopted DRM technology, they will
be able to choose whether to replicate the business model adopted by the proprietary
platform or not.

Anyone will be able to supply hardware and software solutions in conformity
with the platform’s standards and protocols and to request, when necessary,
certificates of conformity;

Network:For the network: operators of bidirectional networks, such as the
internet, will have to include in their offer individual Internet access
services. Such access will have to be "service agnostic": it will therefore
not be possible to give different priorities to the transport of different
types of information, unless this is requested by the user. Moreover, such
access must offer non-discriminatory economic conditions with respect to the
operator’s other offers, and must possess technical characteristics (such as
bandwidth) which fall within the range of the operator’s own commercial
offers;

Payments: consumers will be able to reduce
transaction costs by using an account based on guaranteed collection
arrangements such as credit cards, current accounts, pre-paid cards, Interbank Direct Relationship, etc., which will be adapted to the chosen form
of payment either at predetermined intervals or upon request.

In our opinion,
a co-ordinated implementation of the proposal could lead to a strong and evolved
national market of production, distribution and use of digital contents.

To implement
the proposal, an operative plan must be defined by the representatives of
all the Country’s social, political and economic components, to which other
economic and regulatory interventions can also be added

The more economically,
socially and technologically developed countries encourage a thriving market
of content, not only because of the obvious economic advantages this brings,
but also because it represents a tool which inevitably promotes their citizens’
cultural growth and social participation, results in reinforcing a Country’s
cultural identity and its promotion in the world.

With the introduction
of digital techniques applied to the mass market and, particularly, with the
digital distribution of content, the influence exercised by technology on
information and cultural consumption, on related businesses and, therefore,
on society itself has grown considerably. Here we aim at identifying and proposing
the conditions which are necessary in order to guarantee such balanced development
of the digital media sector as to allow the maximisation of the benefits arising
from technological developments for the benefit of all the parties involved.

To take full
advantage of the development prospects inherent in digital convergence, the
most suitable actions which need to be undertaken must be identified in order
to overcome the critical factors present in the three key sectors of digital
distribution of content:

The sector of digital broadcasting and telecommunications
is involved in the transfer of anything that can be reduced to a ‘bit’. If
on the one hand these are increasingly more efficient, on the other hand the
confluence/confrontation among networks of historically different natures,
functions and regulations (the world of telecommunications and that of radio-television)
can lead to events and misunderstandings which can delay a complete and profitable
digital convergence.

The sector of content management and protection.
The need to identify the right balance between content dissemination and protection
of intellectual property in a digital context gives rise to problems concerning
regulation, but also issues of an economic, technological and social nature.

The sector of economic exchanges between suppliers
and customers. Products lose their physicality; quality of use and ease of
payment therefore become essential elements in their evaluation. The digital
world is pushing towards a personalisation of use which also extends to purchase
methods. Moreover, the user of content will also be prepared to negotiate,
in economic terms, both his/her attention and his/her profiling. Flexible,
fast and secure payment systems must therefore be developed which can quickly
adapt to ever-changing offer models.

The analysis
of these three factors is made particularly difficult by the influence of
technology, which is constantly changing both context and assets, and by global
economic competition which, if on the one hand often triggers immeasurable
economic expectations for the future, on the other hand leads traditional
operators to oppose change by adopting protective measures which slow down
the market’s development. Within digital media the following critical factors
can be highlighted:

Despite the request of interoperability between
content and devices widely expressed by their customers, many suppliers adopt
proprietary solutions of content protection as a tool to create a catchment
area of customers who are obliged to use their offer exclusively;

Despite the great technical and commercial
success of open broadband networks, some providers favour closed networks.
They reckon on the fact that closed networks allow them to tie down customers
and to keep them more efficiently and exclusively based on the grounds of
the quality of their offer;

Payment methods are still tied to models which
do not respond to the requirements of a strong digital media market, which
is a dynamic widespread market, thus preventing the market from growing and
more advanced forms of financial intermediation from being created.

Digital technologies
seem to expose the conflicts between the users’ interests (those of end users
in particular) and the interests of the suppliers of network services, content
and payment systems. Paradoxically, the convergence risks becoming a collision.
This conflict among the various subjects is particularly dangerous with relation
to the circulation of content, which necessitates by definition both inclusion
and participation.

Dmin.it’s proposal,
which identifies three areas of intervention, is based on the principle of
a balance of interests. Service suppliers maintain their freedom to adopt
those technological solutions which they deem more suitable to their offers
relative to network services, content and payment systems.

They must,
however, guarantee the users of their services minimum interoperability
conditions, which can be summarised as follows:

Content: the
supplier of content, who is in possession of the exclusive rights for a certain
transmission platform and which transmits said content through a proprietary
platform, must offer said content also by using a DRM platform, which must
be specified at national level and must be able to offer a variety of safety
levels in order to satisfy the different requirements of the operators. For
each individual distribution platform, anyone will be able to easily access
or offer content at all times, by using the specific techniques of the DRM
platform. The interoperability thus achieved will allow content suppliers
to implement the business model they deem most suitable; users will therefore
be free to choose the device to use among the open and interoperable ones
on the market.

Network: operators
of bidirectional networks, such as the internet, must also include in their
offer a 'service agnostic’ Internet access service (which therefore does not
give priority to different types of information unless specifically requested
by the user), with economic conditions which are not discriminatory towards
the operator’s other offers and with technical characteristics (such as bandwidth)
which fall within the range of the commercial offers proposed by said operators;

Payments: operators
can offer payment services based on consumers’ accounts. Said accounts can
be supported by credit card, current account, pre-paid card, etc. and are
connected with the user’s current account (or with other chosen forms of payment),
according to agreed deadlines or upon request.

In our opinion,
a co-ordinated implementation of these three actions could lead to strong
and evolved national market of production, distribution and use of digital
content. The initiative’s success would make Italy an international reference
model.

To implement
the proposal, an operations plan must be defined by the representatives of
all the Country’s social, political and economic components, which can also
accompanied by other economic and regulatory interventions.

This document
examines in detail some of the mentioned critical aspects (Chapter 2), identifies
the system advantages which may derive from the proposal, keeping in view
the current situation in the world and in Italy (Chapters 3 and 4), describes
the proposal in detail and lists the actions required for its implementation
(Chapters 5, 6 and 7). Chapter 8 comprises the general conclusions.

Digital media
offers several advantages, some of which are already tangible, others still
potential, to the various parties involved in the value chains connecting
those who produce content and those who use them.

At the same time
though, the production and distribution techniques of digital content substantially
modify the roles and traditional operative methods of the chains themselves,
by reducing the relevance of some components, by developing others and by
allowing new subjects to become part of the chains covering new roles.

Technology and
economic market powers can only act better if they are accompanied by adequate
regulatory interventions. To this purpose it should be noted that, within
the temporal succession of the action of modifying factors (technological
development, subsequent adaptation of business models and, finally, the issuing
of norms and regulations aimed at stimulating and protecting the market or
some of its players), regulating interventions can either have a highly balancing
or a highly distorting effect; so far as they have at any rate been obliged
to follow the evolution of the other factors.

The exploitation
of the legislation currently in force by the owners of the rights (and, above
all, the use of some rather outdated aspects of the regulations on copyright
linked to a pre-digital world) has prevented the success of the various attempts
of innovation of value chains made during the first years of digital media.
Nowadays the main trend is to maintain the operative procedures of traditional
value chains as unchanged as possible, even by adopting ‘control’ procedures
enabled by some proprietary technology which not only neutralises the open
aspects brought about by digital techniques, but even suppresses some conditions
of normal use and interoperability which used to be guaranteed by traditional
value chains.

On the whole,
the phenomenon is amplified and strengthened by the Internet’s global size.
The globalisation of digital production and distribution, together with a
pervasive internet, enables the emergence of global operators who can attain
a power up to now unknown, even though they are somehow conditioned by the
technological choices made by other operators either upstream or downstream.

In this global
scenario, Italian economic realities in this sector are not strong enough
to emerge and some national cultural traits are destined to be obscured by
external, non-Italian phenomena. This is unless a national policy for the
sector identifies an area for Italian initiative which naturally does not
oppose market forces and the obligations arising from international treaties.
To this purpose, dmin.it proposes the above-mentioned actions, which
are detailed in chapters 5.4, 6.4 and 7.4, which, on the one hand introduce
the possibility of giving space to Italian culture and contents and, on the
other hand, allow consumers to avoid the negative aspects of a strictly limited
relationship with few global service suppliers.

For the contents
created by an author to reach an interested end user, the existence of a business
model – in the shape of a 'value chain' –is necessary, resulting from a process
which has been developed and consolidated in time (for hundreds of years,
as is the case with publishing, or even just for a few decades, as is the
case with videogames).

Despite the differences
due to the specific type of content produced, distributed and sold, in each
value chain there are typically the basic functions shown in the picture below,
which is also valid for traditional media: authors and consumers are the chain’s
end parts, whereas the intermediaries are the economic parties operating between
said end parts.

Fig.
1 – A value chain for 'non digital media'

In some instances
the functions of the value chain are divided into sub-functions, whereas in
other cases one single intermediary can carry out more than one function,
for example production, packaging and distribution (vertical integration).

Value chains
can be more or less extended, depending on the level of complexity of the
intermediate functions of production (for example an agent, a recording studio,
a record company) or distribution (a logistics company, a wholesaler and a
retailer).

The lengthening
of the chain of intermediaries is positive whenever this is the outcome of
a specialisation in different phases of a production process, which introduces
a specific value in each new stage of the chain. Conversely, whenever the
technical, financial or regulatory conditions promote lack of choice (monopolies
or oligopolies) in some stages of the chain, the product’s final price can
increase with no corresponding increase of added value. Even when the product’s
price does not increase, the general dynamics of the competition of the market
in question can decrease, with a consequently reduced drive towards innovation.
This can happen whenever there are several phases concentrated around a few
large companies, as is the case of content production and distribution, which
are traditionally characterised by high initial plant/planning costs and low
marginal operative costs.

The sector of
content creation, namely the sector of authors, is on the other hand characterised
by an extremely high fragmentation of the parties involved. Sometimes, under
such conditions, the resources of the value chain mostly go to those few ‘creative
operators’ which are chosen by production companies (which tend towards concentration,
as is the case with music or cinema) on market grounds. For example, within
the record industry with physical distribution of supports, only the ‘superstars’
reach a level of royalties of 15% or more on retail prices, whereas in most
cases such levels are much lower.

The content offered
for use can be paid for through different mechanisms, not necessarily alternatively:
advertising, subscriptions, pay per use, service fees, etc. The author of
the content is usually paid by an intermediary (publishers, record company,
producer or a credited institution, such as SIAE [Italian Authors’ and
Publishers’ Association])according to consolidated market mechanisms.

The diffusion
of digital technologies has an impact on all the stages of the media’s value
chains: production, distribution and use. Indeed:

The proliferation of electronic devices which
are able to produce quality digital content (such as digital recorders and
video cameras, digital cameras and new generation cell phones…), together
with the proliferation of Personal Computers and low-cost processing software,
enables anyone in possession of creative skills to produce original or derivative
(re-elaboration of products) work which can be introduced on the market at
a cost which represents a tiny fraction of those of large media companies;

Digital telecommunication networks enable every
author/producer/editor to reach millions of consumers with minimal distribution
costs, maintaining at the same time their control and remuneration over their
own work with licence models, such as the Creative Commons (which are not
based on either copyright or the issue of public property). New use phenomena
can therefore come into existence, such as that of the Long Tail [1], thanks
to which the distribution of ‘niche’ work, which is possibly not economical
in a traditional situation, becomes possible thanks to the low marginal costs
of digital storing and distribution;

Thanks to a suitable combination of networks,
digital media and hardware and software infrastructures, new forms of intermediation
are generated, such as the simple showcase on the web, the creation of shared
sites and online communities, the availability of environments for storing/processing/re-combining
digital media; these new forms of intermediation can in turn lead to the creation
of new entrepreneurial entities with roles up till now unthinkable.

In this process
of change, some significant traditional forms of intermediation become non-remunerative
or even tend to disappear and this induces traditional intermediaries to try
and expand their role to other functions within the value chain. Alongside
the expansion towards new activities, a search for new and more promising
forms of business pushes some intermediaries to try and ‘protect’ a section
of the value and chain by creating the so-called ‘walled gardens’, in which
customers can only access an offer for content and services by using the specific
devices supplied by the operator. This process is practiced both by suppliers
of content services and by the operators of telecommunication networks and
cable TV by using network technologies and, if necessary, by creating ‘bundles’
between network services (access) and content services. In both cases results
are also obtained by using, for the sole purpose of protection, technologies
which are collectively (and incorrectly) known under the name of Digital Rights
Management.

As a matter of
fact, although the use of DRM technologies of proprietary protection does
enable the creation of digital media value chains almost similar to traditional
value chains, it also causes important alterations within the whole business
ecosystem.

Said alteration could entail some drawbacks,
such as:

Each DRM of proprietary protection creates
a univocal and almost indissoluble tie between content and (proprietary) technology
for its use

Because of the differences among the proprietary
DRM systems utilised, authors and/or producers are obliged to adopt several
technologies in order to issue their work, which entails an increase in distribution
costs;

The costs relative to the introduction of a
DRM platform are high because of the lack of open and industrially accepted
DRM standards which could reduce supply costs;

The proprietary DRM could entail high customer
acquisition and maintenance costs for those who control the final part of
the value chain, as it is the latter’s responsibility to guarantee to consumers
the availability of equipment suitable for using the content (although in
some instances customers themselves pay for such equipment).

Whenever certain distribution stages are concentrated
because of the use of non-interoperable DRM systems, those who control such
systems can influence both the stages uphill and those downhill of the whole
value chain.

The use of a proprietary protection DRM can
have a negative effect on the end user in several ways:

Limitation of content use because of the fact that the proprietary protection DRM ‘prevents’
some legitimate actions the user would want to carry out because he/she has
the right to do so in conformity with a mandatory rule;

Economic penalty because
of the fact that a specific content, which has been legitimately acquired,
cannot be listened to/watched on any equipment other that that provided for
by the supplier, as said content has not been ‘technically’ devised to be
used on different devices;

Filtering of content distribution as their transmission on some platforms could
not be allowed;

Need to use several pieces of equipment
to be able to have a wide range of content, which are in any case less
than those available;

Feeling of frustration and uncertainty,
which slows down the adoption of new techniques by consumers.;

Although possibly
bearable in the short-medium run, in the long run these problems lead to the
danger of rejection by end users and therefore require a counterbalancing
action.

The drawbacks
identified in the previous chapter cause a certain number of side effects,
which cause damages on several levels: from those relative to the economic
cycle, to those relative to cultural plurality, to the impacts of systems
on the development of our Country.

For example:

A proprietary DRM offers to those who possess
it an unprecedented powerful control tool on the value chain

Due to the high costs involved in the creation
of a value chain, the proprietary protection DRM can be used to create a very
few commercial entities, mostly on the global scene, which can distribute
content in protected mode and then has the possibility of monopolising the
processes of authorisation to handle content, which are attributed an economic
value by the public who use them

With the exception of few, very lucky cases,
the role of authors is therefore further marginalised and limited to ‘work
for hire’; being obliged to link their work to a proprietary DRM system, authors
will have no other possibility but to rely on the few big names in world distribution

End users run the risk of being unable to access
the source of their own choice to satisfy their need for cultural pluralism

On top of this, the so-called ‘walled gardens’
oblige, or at any rate limit, content users’ choices and therefore generate
bottlenecks along the value chain

Many of these
elements can be found in the business approach of one or more sections of
industry in connection with the production, the distribution and the use of
digital content as a normal reaction of the industry to the challenges and
opportunities of digital technology.

In our opinion,
their extension in the medium and long run, could reduce those collective
social benefits the digital revolution could bring and could further marginalise
the role of our Country in this market.

So many conflicting
signals suggest that a turning point has been reached, a change of pattern,
the practicality of which can be verified by experimenting with the way those
new business models even finance – both Venture Capital and the more prudent
ones – or seem nowadays willing to support.

The purpose of
this proposal is therefore the creation of those conditions necessary for
the development of solutions which can combine the need to communicate,
without restraints, with the need to inform and be informed without
restraints. Those who find these solutions will be able to enjoy remarkable
competitive advantages, of which the ‘system-country’ to which they belong
will also be able to benefit.

Those countries
with bigger internal markets than Italy’s could perhaps explore all options.
According to dmin.it, Italy should on the other hand focus its resources on
a limited number of promising directions in order to gain a favourable position
within the evolving digital world. For this reason dmin.it’s proposal can
both maximise the social benefits of the new digital technologies and offer
new and significant market opportunities.

Dmin.it’s proposal,
which aims at optimising the circulation of digital media, stimulating and
extending the market by creating the right conditions for the development
of established businesses and the creation of new ones, requires the concurring
and co-ordinated realisation of actions in three different areas:

Maximum opening of the technologies for the
management of digital media rights;

Maximum opening of networks

Maximum opening of payment systems.

As far as relationships
with the suppliers of different services are concerned, the proposal is based
on two driving principles:

to maintain their freedom to adopt those technological
solutions they deem suitable for the specific offers of network services,
content and payment systems;

to guarantee a minimum interoperability offer
to those users of their services who request it.

For this purpose,
entrepreneurs can use for their business both interoperable types and proprietary
and interoperable types of network services, content and payment; consumers
will be able to access these services and to use any content of the digital
world in a simple and economical way

In particular,
as far as the technologies for the management of rights are concerned, the
proposal requires that the ‘closed and non interoperable’ DRM protection
systems, which are undoubtedly effective in terms of protection of interests
of some parties of the value chain but cannot protect the interests of all
the players, be supported by systems based on a nationally-adopted standard
of interoperable DRM (which we shall call iDRM) which can offer several levels
of security in order to satisfy the various requirements of the operators.

The use of an iDRM offers several specific
and system advantages:

it will be easier to satisfy end users’ wish
to use, as they can access a great range of content and services by using
the – standard – devices they already own; this would broaden the market’s
potential in terms of content use;

any content can be accessed with a single device;
as a consequence, obtaining and using content illegally becomes less likely;

non blocking value chains can be created, such
as the one shown in the picture below, for which the control of rights is
exercised strictly yet flexibly and fairly with iDRM technologies;

the technological and economical threshold
to gain access to value chains is lowered; this is a particularly suitable
context for the development of authors’ creative activities and it also promotes
business innovation through the creation of intermediaries which can link
to the chains introducing new functions;

in terms of a broader use (see point 1 above),
the maximum reutilisation of content and digital media is enabled and their
decomposition/re-composition and aggregation/integration is allowed, in order
to create new products and derivative work;

Fig.
2 – Value chains with the iDRM

In other words,
the iDRM is a solution which, on the one hand reduces a single operator’s
control over the whole value chain and, on the other hand guarantees a higher
satisfaction for end users and ultimately enables the growth of the whole
market.

We are thinking
of an innovative model to be implemented in Italy, but which could be potentially
exported which, thanks to the development and use of an interoperable DRM
system together with open systems for accessing and distributing content such
as those described above, would enable the entrepreneurs acting within the
various segments of the values chain to compete on equal terms with the large
global media company.

Dmin.it would therefore propose to adopt
some specifications which must have the following characteristics:

they must public

they must be easily implemented by ‘anyone’
who wants to build equipment

they must be easily usable by ‘anyone’ who
wants to offer services

The use of inverted
commas before and after the word anyone denotes that, by using the
platform with safe technologies, the access by any party to the value chain
must be subject to some form of qualification of products/services by Certification
Authorities. Please note that the above-mentioned specifications must however
provide for one or more modalities of controlled distribution of digital media
in keeping with said specifications even without the use of protection technologies
– the so-called Technical Protection Measures (TPM) – for example for the
distribution of works under the Creative Commons licence.

The availability
of said iDRM platform represents a necessary condition for the creation of
a horizontal market accessible to any equipment manufacturer, content/services
supplier or of content/services consumer. In order for this to also become
a ‘sufficient condition’, it must be necessarily (and simultaneously) integrated
with the proposals relative to network and payment systems, as will be detailed
below.

From a practical
point of view, the dmin.it’s proposal implies that for each digital
distribution platform, each operator supplying content to end users
through a proprietary system should also at the same time make available content
for which he holds an exclusive platform also through a nationally-adopted
iDRM system with open and publicly defined access and protection standards,
which is able to offer a variety of safety levels in order to satisfy the
various needs of the operators. The whole arrangement is without prejudice
to said operator’s faculty to select the most suitable mechanisms of iDRM
offer, with offer conditions comparable to and non discriminatory towards
those relative to the proprietary system.

Depending on
the areas to which the proposal can be applied, several scenarios can be identified.

DTT, contenton payment

There are two
main subjects: A, a TV viewer who owns the equipment which can receive channels
broadcast via terrestrial digital; B, content suppliers/integrators with exclusive
right over content x, who intend to offer them on terrestrial digital which
they support; C, network operators or integrators/suppliers of content on
the market of DTT.

The service is
implemented as follows:

subject B ‘rents’ the broadcast service from
C or finds ‘space’ within C’s scheduled programmes. B’s content is managed
and protected through the open interoperable DRM;

client A accesses B’s content by using a device
which he/she chose and purchased on the market among those which guarantee
interoperability.

To make this
possible an interoperable DRM must be defined which allows the identification
of all business models (PayTV, PPV, etc.) and interoperable devices must be
present on the market.

Satellite:
contenton payment

The subjects
are the same as those of the DTT case: A, a TV viewer who owns the equipment
which can receive channels broadcast via terrestrial digital; B, content suppliers/integrators
with exclusive right over content x, who intend to offer them on terrestrial
digital which they support, C network operators or integrators/suppliers of
content on the market.

The service is
implemented as follows:

subject B ‘rents’ the broadcast service from
C or finds ‘space’ within C’s scheduled programmes. B’s content is managed
and protected through the open interoperable DRM;

client A accesses B’s content by using a device
which he/she chose and purchased on the market among those which guarantee
interoperability.

The requirements
are the same as those of DTT.

IPTV

In this case
the subjects will be: A, subscriber of B’s connectivity and IPTV services,
the network operator; C, network operator with exclusive rights over content
x who supplies to his clients (of which A is not part) in IPTV mode.

According to
service procedures, C should initially requests interconnection from operator
B for IPTV services. Following interconnection, customer A accesses content
x via the same forms and the same device he/she uses when utilising the IPTV
content supplied by B. The quality of the service supplied will in any case
be given by the minimum between the quality of service of the two operators,
B and C.

A requirement
of the service is that the device used by customer A must be interoperable
with regards to any IPTV offer.

WebTV

Generally speaking,
4 subjects can be identified: A, customer; B, network operator, of which A
is a customer for connectivity services; C, Content Provider with exclusive
rights over content x; D, network operator, of which C is a customer.

In this case
operative procedures must be differentiated on two aspects:

through ‘Internet service agnostic’ the contents
supplier C can make his services visible through public addresses and by using
TCP standard ports.

through ‘Internet service agnostic’ customer
A can

address C’s Web TV service (public IP addresses),

interoperate
with said service (TCP standard ports),

use content with a network transmission
service such as Best Effort.

Besides the necessary
presence of devices based on interoperable DRM, some form of interconnection
between B and C must exist (through peering agreements, or through Internet
and third party operators). The quality of the service of access chosen by
A must be suitable to the type of content supplied by C. C must be able to
obtain what he/she needs to publish his/her content on the network under market
conditions. In the case of content for payment, the economic relationship
is in any case between A and C.

Finally, within
broadband a homogeneous market would be created which, covering the whole
national territory, would comprise as many potential consumers as there are
broadband subscribers on the whole, thus developing an innovative Italian
model, potentially exportable, which would give consumers plurality of offer
specifically enriched by a relevant presence of medium and small national
suppliers.

Within broadcasting,
this would be equivalent to achieving a situation of simultaneity in which
content suppliers distributing media on a proprietary platform (for example
through their own Set Top Box) must also at the same time make available their
own content through open Set Top Boxes which can be purchased on the market
according to the same business rules they have defined.

For each transmission
technology there would therefore be content also usable with a user terminal
purchased on the market and interoperable with regards to the encryption systems
provided for by the protocols of the iDRM platform adopted at national level.

As mentioned
above, there are two other qualifying technological elements which are needed
in order to support the horizontal market of digital media which will be opened
by the introduction of iDRM. For the specified scenarios to be possible, both
elements must be realized jointly and must be introduced simultaneously.

These elements are :

an open broadband which allows the circulation
of digital media without introducing discriminatory elements as to the nature,
the origin and the destination of content

a flexible, economically efficient and secure
payment system, which can support micro-transactions and large purchases effectively
and reliably and can therefore be applied to all possible business relationships:
B2B, B2C and B2B2C.

Within the wider market of communications there is a particularly strategic
area which deals with content available on broadcasting and Internet digital
broadcasting.

Because of the nature of the goods exchanged within the market of contentwhich, thanks to their use, generate a demand for
new content(‘I liked the story, I would like new stories’), the growth of demand
is triggered more by the abundance rather than the shortage of offer. Problems
relating to the management, the protection and the valorisation of intellectual
property can however trigger negative dynamics which are difficult to overcome
and make things difficult in terms of equilibrium of such a promising market.

In the debate on such issues, the sector’s industries and the end users
are opposed as far as the utility of sales models of protected digital content(based on the enforcement of copyright and related
rights); the much needed and appropriate ‘complicity’ between client and supplier,
without which no market can keep up, has therefore decreased. In this scenario,
the Electronic Frontier Foundation (EFF) and the European consumers organisation
(BEUC) believe that said models heavily impact on fundamental liberties and
on constitutional rights; at the same time there are attempts, such as those
by Creative Commons [2], to create models of free distribution by using mechanisms
fully in compliance with the regulations on copyright, thereby overcoming
their apparent rigidity.

Give the premises, in our opinion for the contentmarket to fully work, a relationship
of trust between authors and customers must be regained by attributing to
the authors greater decision-making powers on the degree of protection of
their work, by entrusting the management of rights to regulations and technology,
and by educating consumers to a correct perception of the value deriving from
authors. We believe that, within the current reform of regulations on intellectual
property, clear regulations should be defined which also deal with the management,
as well as the protection of intellectual property and which facilitate:

for service suppliers, the choice on how to
deliver content (including
the DRM protection procedures, with the exception of the obligation specified
at paragraph 5.4);

for content suppliers, the availability of some audiovisual products (those on
which they have exclusive rights) either according to an ‘close’ mode (with
protection systems of their own choice) or according to an ‘open’ mode – even
though protected by interoperable DRM with specifications defined nationally
which is in any case able to offer a variety of safety levels in order to
satisfy the operators’ requirements.

This
would allow the introduction on a national level of the release terms defined
at point 5.4.

The initial stages of what we call the mass-media system lead to a
concentration of the phases of representation, conservation and management
of knowledge in private and public entities. The latter, often of monopolistic
nature, used public resources to produce and distribute contentand to support the technologic innovation
needed for development.

The progressive introduction of digital techniques in all the stages
of the value chain has changed – among other things – the economic terms of
the processes of representation, production and sharing of knowledge. In particular,
digital technologies have made information long-lasting, economical and easily
retrievable, with great benefits by non-linear sharing of knowledge whereas,
thanks to the widespread distribution of fixed and mobile digital networks,
information can reach every user at a fraction of the costs traditionally
associated with transport and with extreme flexibility (linear sharing).

Not all stages of the value chain have however harmoniously adjusted
to the possibilities offered by technology. The offer of content on payment
has often been proposed by compartmentalising the market by means of proprietary
technical solutions for the protection of content. ‘Walled gardens’ have therefore been applied which, despite being
legitimately realisable, have negative implications on the global efficiency
of the market of content. ‘Walled gardens’ often fragment the market in such
a way that they do not justify large investments on the creation of content.
When on the other hand, thanks to non interoperable DRM technologies, they
coincide with whole-scale distribution platforms (see the satellite offer
in Italy), walled gardens tend to raise the threshold of access to competition
in distribution. Moreover, the large investments required by their management
can subtract resources from the creation/production of content. Finally, the
control of a protected DRM ‘platform’ can give one or more operators too much
power over various points of the procedure and, in particular, on the management/profiling
of the final customer.

For as long as intellectual work has been represented by physical objects
(paper, vinyl, magnetic tape, etc.) not much has changed in terms of the other
value chains created by man’s economic activities. The necessary adjustments
have been progressively introduced by international treaties, such as the
Berne Convention [10] or the legislation regulating copyrights (in Italian,
French and British law).

The law has also adapted to the evolution from analogue to digital,
although it has struggled to keep up with the speed at which technology has
been developing and with the consequent emergence of business models (industrially-derived
‘top down’ or popularly created ‘bottom up’, such as the peer-to-peer exchange
of files) which are constantly challenging the methods of distribution and
use of digital content.

For a medium-sized country like Italy, with a medium-sized cultural
industry and a language of modest dissemination, the lack of policies regulating
the use of digital techniques as support for value chains could weaken the
creative process.

In all countries
the transition from analogue to digital has seen the intervention of both
the public authorities and the market. In most cases there have been and there
still are serious problems of coexistence in terms of expectations of right
owners, intermediaries and end users.

A typical case
is that of DTT USA, the first in the world to propose an ambitious project
called Advanced Television (ATV) to broadcast high definition programmes on
terrestrial channels; this programme is now stalled as high-value content
is not made available for fear they may be immediately re-broadcast by other
networks.

The situation
in Japan, where a nationally accepted procedure has been defined which includes
terrestrial networks, satellite and CATV and a centralised payment system
exists, is very interesting and is similar to dmin.it’s proposal outlined
in section 5.4.

Virtually all
countries in the world have Pay TV or satellite services. Up to now these
have only been successful in larger countries and/or in countries with a large
linguistic catchment area. In all other countries the original competition
has shrunk to one or even no operator.

In Italy, in
terms of mass distribution, digital media are at the beginning. The main (and
possibly only) exception is represented by the Pay TV service on the satellite
platform offered by Sky Italia which, as at March 2006, counted about
3.7 million subscribers. Such service requires a specific STB which integrates
local proprietary technologies for the protection of content. There is,
therefore, no horizontal and open market of STB supplier for satellite
Pay TV, and Sky supplies its own terminal to its own customers.

As far as Pay
TV services on Digital Terrestrial TV (DTT) are concerned, the situation is
completely different. These have been created as additional Pay-Per-View (PPV)
services for free-to-air available channels and were initially developed both
by Mediaset and by La7 independently (competitively, as it were) by using
different technologies for conditional access. In order to avoid the fragmentation
and consequent blockade of the emerging market, the two companies have willingly
and knowingly co-ordinated their actions, thus laying the basis which allowed
all manufacturers of STB sold in Italy to integrate both protection solutions
they used in their products. Said co-ordination action went further by also
enabling the development of another level of abstraction of those functions
needed for a Pay-per-View service in terms of API Java.

On the whole
the operation has allowed the preservation of an open market of STB for DTT,
and has given the manufacturers of decoders who wish to enter the Italian
market the possibility of including conditional access in their device or
not. To date an estimated 3 million DTT decoders have been sold which have
been manufactured by taking advantage of this ‘system’ agreement.

IPTV is digital
television which reaches the home through a broadband connection. Nowadays
in Italy two different services are available, provided by Fastweb and by
Telecom Italia. In this case too, the two service offers use specifically
developed proprietary decoders, which use two different solutions which are
incompatible with each other. The number of IPTV customers in Italy is however
still small, with less than 300,000 units.

The use of digital
media on PC via ADSL is a potentially much bigger market. Among the various
content - supplying portals, many propose a basic ‘free’ offer (such as RAI’s
Web portal), other offer some content free and some on payment, and can almost
always be accessed and consulted through any broadband access. In most cases
pay services use Windows Media’s DRM technological solution. This is because
of the fact that there is, as it were, a single supplier of the device on
which clients use content: in our country the presence of Microsoft Windows
on personal desktops is in fact close to 90%. This is a case of a ‘single
decoder’, which is also valid as far as the consumption of music on PC is
concerned, which is also mostly based on Windows DRM or Apple iTunes protection
technologies..

With regards
to music on portable devices, the situation is on the other hand rather different.
On the one hand there is the predominant coupling of iTunes and iPod, which
represents a monolithic system with a specific Apple protection technique.
Then there are all the other Italian online musical shops, which include a
certain number of players operating within this sector both through specialised
portals (for example, vitaminic, messaggeriedigitali, mediaworld….), and through
the musical sections of multimedia portals (for example, Rosso Alice, musica.tiscali.it,
imusic.libero.it, music.rai.it…). The above-mentioned portals allow one to
purchase and then download music in digital format for portable devices using
the Windows Media Player protection system, with the exception of Vitaminic,
which supports both Windows Media Player and the iTunes format.

Music is also
supplied via cell phones, as all portable phone operators offer their customers
the possibility of downloading and listening to songs via a wireless network.
In this sector, too, despite the standardisation action promoted by
OMA (Open Mobile Alliance), the solutions implemented by the various operators
are interoperable. And for the services of Mobile TV broadcast on 2.5 or 3
G network, the situation is the same.

For some aspects
the situation is also the same for the service of Mobile TV with DVB-H technology,
already launched by 3 Italia and TIM and also announced by Vodafone. On DVB-H
the solution of content protection adopted by the various managing agents
belongs to the same technology supplier and comprises a SIM-lock function
which prevents the DVB-H cell phone from being used with a different SIM card
and, therefore, from receiving and decoding signals coming from other DVB-H
networks.

Final conclusions

Among the various
service offers, there is an extremely high plurality of systems used
for the protection of content. In order to use the same services on the same
platform, different protection technologies are often used and even
when the same technology is used, specific features are often included which
limit or prevent interoperability between terminals and content. In this highly
verticalised scenario, the only solution ‘against the mainstream’ is represented
by the terrestrial digital platform, which could show the way to be followed
to create open markets for digital contents.

As exhaustively
specified above, according to dmin.it, a full, open development of
digital media requires that the conditions of interoperability be recovered.
In terms of management and distribution of content, in dmin.it’s opinion the
market needs to make available implementations of an interoperable DRM system
based on public specifications, similarly to the way GSM (an ETSI standard)
is a nationally-adopted communication system.

The interoperable
DRM system therefore comprises a set of technical specifications, standards,
protocols, governance and, also, regulations which will be defined
nationally. By using the interoperable DRM’s specifications, products can
be manufactured using the interfaces and protocols identified by public specifications
and adopted at national level.

Manufacturers
or distributors of digital media operating at national level who, by holding
the exclusive rights for a certain distribution system, offer content to consumers
through a proprietary DRM system, will also have to distribute such content
through the interoperable DRM system adopted at national level. This will
guarantee that consumers can access any content distributed within the Italian
territory with devices of their own choice, selected from those offered on
the electronic consumables market. As far as the distribution of interoperable
DRM systems is concerned, suppliers will be able to adopt the most suitable
business models, which either replicate those implemented on any of their
proprietary platforms or not; the offer must follow the market regulations
in force and must not be discriminatory (in terms of qualitative, technical
and economic aspects) with respect to the offer proposed through the proprietary
DRM.

As far as compatibility
of the DRM adopted for the interoperable DRM system is concerned, both suppliers
and customers will be guaranteed in terms of compatibility thanks to a wide
range of user terminals on the market.

The technical
specifications of the interoperable DRM system will be developed by a duly
set up committee (defined as ‘National Authority’), which will be responsible
for making said specifications available by a predetermined deadline. Said
specifications will concern hardware, software, content and services,
and will be made public both in textual format and in Open Source Software
in order to optimise performance and facilitate their adoption.

The interoperable
DRM system must be able to support any business model, including innovative
models never implemented before. The interoperable DRM system will also be
able to manage the unprotected release of content (pure management) and any
negotiation involving the transfer (possibly even free) of content upon authorisation
including the tracking of the mode of use.

Governance regulations will also be defined
for the interoperable DRM system, such as the request and the obtainment of
certification, the assumption of responsibility, etc.

Anyone will be able to access the interoperable
DRM system to offer or use content.

Anyone will be
able to create hardware, develop software, propose services as long as these
are in accordance with the technical specifications and the governance regulations
of the interoperable DRM system. Where necessary, the governance system will
request the certification of devices and services.

Most of the technologies
requested are already available. See, for example, the MPEG-21
standard suite [4], through which a DRM platform with a complete set of basic
functions can be created, as already done by the Digital Media Project [8].
If requested by the market, other functions could subsequently be added.

In order to examine
the proposal’s economic element, two different aspects must be assessed: one
relative to the markets existing along the value chain and the other one relative
to the types of exchanges which are carried out in said markets. The first
aspect describes the economic ‘environment’ within which holders of rights
and end users could meet, whereas the second describes the economic properties
of the exchanges carried out. In relation to said exchanges, the effects arising
from the adoption of a single decoder system for each platform should be assessed.

A first, general
characteristic of digital goods lies in the lack of the conditions typical
of competition. As far as offer is concerned, there are almost always increasing
returns (that is, strong scale economies) due to the presence of high fixed
costs which are necessary for the production of the first copy, associated
with very low marginal costs (those incurred to produce other copies),
which tend to correspond to zero. As far as demand is concerned, there are
often positive network external effects (for a definition, see 6.5.2). Because
of these characteristics, returns on these competitive markets are imperfect.
To this basic imperfection, another one, relative to the strong differences
existing in the level of competition of the different markets operating along
the value chain, is added. Where, in fact, the activities of
transmission and distribution of digital goods are offered in liberalised
markets, the competition tends to be quite strong; on the other hand,
the owners of the rights over content (intellectual work, relative rights)
enjoy a legal protection which effectively makes them monopolists of the goods
they own. This particular configuration of the market results in strong differences
in terms of contracts between manufacturers and consumers. Whenever they effectively
hold any market power, the manufacturers are often led to adopt discriminatory
behaviour by fixing different prices for consumers; whereas consumers tend
to look for solutions which reduce the most negative consequences of the monopolistic
exploitation adopted by the holders of rights, even by transcending the usual
economic relationships completely.

This ‘see-saw’
between owners of rights and consumers has often resulted in failures in the
market, namely in a quantity of exchanges lower than the one there would have
been had the market been competitive. This proposal is therefore aimed at
facilitating exchanges between owners of digital rights and end users, that
is, reducing the transaction costs burdening the parties as much as
possible.

According to
economic analysis, the latter can be classified in two types. The first type
of ex-ante costs includes all activities carried out before the
transaction takes place[2]
; among these are included costs relative to information and research on possible
partners and their identity, on existing prices, on market trends, on future
prospects, on expected risks inherent in the investment one intends to make
through the transaction but also on negotiations, including the supply of
sufficient guarantees to convince the other party to carry out said transaction.

The second type
relates to the activities subsequent (ex-post) the conclusion of the
contract or the exchange: monitoring that the contract is observed, effectiveness
of guarantees, costs arising from possible controversies.

This analysis
demonstrates that the proposal intervenes on both the ex-ante stage
and the ex-post stage and facilitates exchange by reducing transaction
costs.

The proposal
allows owners of rights to simplify the distribution of any goods and to facilitate
its use by the consumer at the conditions of use each party deems best. However,
differences between the parties still remain because, as mentioned above,
wherever possible owners of rights will try to exploit their own monopolistic
power granted by the regulations in force by exercising some price discrimination
towards consumers.

In this case,
too, the proposal seems to have a positive effect, facilitating a legal
activity of consumer proliferation for the owners of rights thanks to the
acquisition of data, which is essential to the development of an effective
commercial activity, and the right to non-discrimination for final consumers.
From this point of view, the prior ascertainment of the other party’s identity
appears to be a factor which, by facilitating the supply of information, generates
trust between the parties and therefore facilitates the exchange.

The proposal’s
advantages, which allow consumers to access content with a ‘single device’,
result both in a growth in the level of competition in the various markets
of the value chain and in a higher wellbeing of consumers. In fact said provision
undoubtedly has a positive influence on the markets existing along the value
chain, both in terms of equipment and content. Thanks to a ‘single device’,
acting as ‘lowest common multiple’ of the various existing standards for the
use of multimedia content, the anticompetitive risk connected with the possible
existence of proprietary technologies for single decoders is less dramatic.
By offering functions and exclusive ‘extra’ services, single decoders can
in fact coexist with the single open version, which allows all consumers to
use the main (therefore not necessarily all) content and services offered
on the market by utilising a ‘single device’. Those consumers wishing for
a supplemental exclusive service could safely choose the proprietary decoder,
in the knowledge that the basic performance of all content offered on a certain
platform is in any case guaranteed by the ‘single device’. At the same time
the possibility that such exclusive technology, which would still be present
in proprietary decoders, could be used by the company which owns it for an
unjustified restriction of the market in order to maintain their leadership,
would be precluded.

In terms of demand,
the interoperability of the ‘single device’ stimulates the level of demand,
which is higher than what there would be on the market if only incompatible
proprietary standards were present. In terms of offer, there being technology
not proprietary de jure but open and shared, there will presumably
be a number of manufacturers which, while competing over the quality and price
of their own model of ‘single device’, will be spurred to look for forms of
technical-productive co-ordination. The realisation of a single open standard
could, in fact, in itself suggest the creation of consortiums/alliances
for sharing the access to the licences of the patents needed in order to create
the various elements of the ‘single device’. Naturally it will be up to the
quality of the governance and the regulations these institutions shall give
themselves, for example by predisposing suitable forms of cost and revenue
sharing arising from the use of shared resources, so as to minimise the likelihood
that some participant to the consortium be tempted to behave opportunistically
towards the other members once the standard of the ‘single device’ has been
defined.

Current national
regulations do not provide for explicit forms of interoperable DRM. The law
on copyright for example includes some regulations which refer to the so-called
‘technical protection measures’ (art. 102/quarter., paragraph 2, Law on copyright,
according to which ‘Technical protection measures are considered to be efficient
in case the use of the protected work or material is controlled by the relative
owners through the application of an access device or a protection procedure,
such as encoding, distortion or any other modification of the protected work
or material, that is limited by means of a mechanism of copying control satisfying
the objective of protection.”).

The law on copyright
therefore also protects those who use DRM to protect intellectual work from
possible infringement, without however giving any provisions with regards
to interoperability.

The inevitable
reaction to the regulator’s inertia by the creators and holders of digital
content has translated, at world level, into an attempt at creating systems
which can guarantee and, where advisable, sanction any improper operation
in connection with the rights, which compensate for the lack of specific regulations
and are compatible with the general regulatory context. These are the DRM
systems, which can consist of simple self-regulatory measures carried out
by means of contracts, and may include the so-called ‘technical protection
measures’ (TPM), which physically prevent the possibility of infringement
and activate the sanctions provided for by the law on copyright in the event
of infringement.

Even though the
ideal solution would be to implement a legislative reform on copyright, implementation
times would be long and the results somewhat uncertain. Having acknowledged
a significant lack in regulations and an orientation of the market towards
solutions exclusively based on DRM, another way of intervention is proposed,
which leaves aside the regulations on copyright and restores the regulations
on the single decoder, which had already been in force in Italy (Law 78/1999),
and which should be adequately updated in order to reflect the proposal’s
contents on the issue of a ‘single device’ platform.

The regulations
(platform of interactive digital television, irrespective of transmission
procedures) are already included within the ‘Framework Directive’ (considering
31 and article 18, Directive 2002/21/EC) and are in fact the regulations which
should be kept in mind in terms of European dispositions.

To be effective, as far as this proposal
is concerned, these regulations must provide for:

technical specifications: these are the technical
specifications relative to the equipment or the software which, platform by
platform, will enable the reception of digital content, even if protected
by DRM, according to the interoperability criteria outlined in this proposal;

freedom of access: this is a system of public
licences (similar to GPL or Creative Commons), which is defined and adopted
through the chosen regulation system; the licences in question allow free
access to all hardware and software components of the single decoder for the
chosen platform; among these is the licence of interoperable DRM; the system
of licences in question will have to contravene the dispositions in force
concerning technical protection measures included in the law on copyright;

obligation of release: the ‘single device’
of each platform allows its users to use at least ‘basic versions’ of the
straightforward/conditional access offers present on each platform (versions
which therefore favour digital content over the added value services available
in the proprietary version); if the product differs from the product available
in the proprietary version, the price is consequently adjusted subject to
the control of an independent organisation.

freedom of trading: the authors and owners
of rights over the work can request that the licences outlined at point ‘2)’
specify, within the limits of the law, how said work is circulated (first
distribution platform, exclusive, etc.)

The regulations
do not necessarily need to be ‘hetero-imposed’: the above-mentioned results
could be achieved through an agreement among stakeholders aimed at promoting
the agreements needed in order to introduce the ‘single device’.

Said agreement can also be reached by means
of a consortium and then be ratified by the Communication Authorities or by
the Ministry of Telecommunications. Said authorities can, if necessary, adjudicate
on prices and clauses.

Said solution would solve several existing
problems relative to the current regulations.

Current regulations do not in fact provide
for a single platform for the circulation of digital content, whereas they
specify that an accounting or company separation, depending on the case, should
exist between network operators, content suppliers and suppliers of interactive
services (Art. 5.1. Consolidation Act Radio and television, which provides
for this obligation for the companies operating within the radio and television
digital communication sector).

In terms of terrestrial
digital, these subjects are obliged to use a certain category of API (MHP);
similar obligations do not however exist with regards to satellite, cable,
IPTV, Internet TV and DVB-H[3].

It is obvious
that an agreement on a common platform with relation to the single decoder
is therefore needed. Failure to do so would result in the ‘open’ protocol
being a limitation rather than an opportunity for terrestrial digital. The
remaining platforms, characterised by closed protocols, are where anyone can
broadcast ‘valued’ content.

The presence
of an iDRM platform on a ‘single device’ could result in each platform having
an open CDN (Content Delivery Network) alongside the proprietary ones, on
which digital content can be streamed.

For users,
the benefit would lie in the possibility to access digital content, even for
a ‘basic’ experience, with the consequent democratisation of the same. The
positive experience of Open Source and Creative Commons proves the likelihood
of success of such an approach.

The antitrust
aspects of the proposal should finally be assessed: if carried out by way
of an agreement, the proposal could be under scrutiny by the Competition and
Market Controlling Authorities as it would limit competition; if carried out
as hetero-imposed regulations, the proposal could equally be under scrutiny
by the same Authorities, as it could disrupt market operation.

The case can
be argued when presenting the proposal to the Authorities, once a precise
implementation strategy has been defined.

Dmin.it’s proposal integrates several aspects,
some of which are traditional, some innovative. In brief:

There is an open standard which defines the
DRM system;

The standard can offer a variety of safety
levels to satisfy the different requirements of the operators;

There are many ways in which the DRM system
can be realised;

The DRM system’s specifications support uses
which should potentially be very different, each one from the other
(streaming, file, broadcast with and without inbound channel, etc.

The DRM system’s transport level is given by
the open network (internet) or by the MPEG-2 transfer protocol (for broadcast)

Anyone can use certified realisations of the
DRM system to offer content and services

The DRM system has a strong governance

Similarly to all basic internet protocols,
being OSS, the DRM system’s software is constantly being tested

The advantages of adopting it at national
level would interest all the players in the value chain:

For end users:
the market would tend to favour interoperable and multi-platform devices which
could however use some different technologic elements for different distribution
platforms; this would allow consumers to overcome the current lack of communication
of offers and content. If proprietary platforms were to be no longer predominant,
the market would be more open to offers such as pay per view and pay per use,
and this would result in a higher profitability of the customer’s investment
and an easier comparison among the various offers.

For authors/artists and producers: on one hand they could reach a vast public (the Network public) with
less need for intermediation and, therefore, fewer barriers, particularly
as far as beginners are concerned; on the other hand intermediaries will operate
in a more competitive market which will require more innovation in terms of
content offered and will be able to re-launch their role by searching and
identifying new quality ideas/products.

For current suppliers of content on proprietary
platforms: their potential customer portfolio
will be much broader than their current one, it will not necessarily be tied
to a single business model and will be potentially multi-platform. They will
have to take advantage of the new opportunities by reconverting their investments
on product innovation, which are nowadays necessary to create and maintain
proprietary platforms.

For suppliers of services and companies
in the ICT world: the extension of the proposal
to a national level opens great business possibilities to anyone who can supply
efficient and innovative solutions, along the whole value chain. Moreover,
sharing both standards and protocols guarantees service suppliers a great
exportability of their solutions in a large number of contexts.

For companies in the electronics consumer
sector: by overcoming the so-called walled gardens,
the market of digital media will become a true mass market. In this sense,
the Italian experience would also give stimulus to export.

For network operators: The market of content transport will finally open to network operators.
Content suppliers wishing to distribute contents through the open national
platform will be able to contact a specific network operator or put the various
network operators in competition and then clinch a deal with the one with
the better offer in terms of capacity/economic conditions/QoS. Thanks to the
existence of a single platform, the transferred contents can in any case be used.

The adoption at national level of an open
and interoperable DRM platform would give an unprecedented stimulus to the
circulation of content, or rather to its formulation, production and use.
Many of the existing technological barriers would be knocked down and this
would also allow the recovery of part of the digital divide currently existing
in the country. Wider access and use of content results in informed, aware
citizens and social inclusion..

Italy has the power
to create, define, integrate, realise, operate and govern such complex evolution
and could propose itself to the whole world as a new paradigm of a Country
which was able to fully exploit the opportunities offered by digital convergence.

In the boom years
bridging the century, the great success of the Internet, the first mass service
digital network – even though with a very limited bandwidth – led people to
think – erroneously – that the Internet would have ‘naturally’ evolved into
a global broadband network.

Today the evidence
shows that, despite the fact that the Internet and the IP protocol have catalysed
the convergence of media and their business and tend to assert themselves
as a single media, the economic returns on the investments on the network
are finding it difficult to take off.

Telecommunication
operators therefore feel cornered between the substantial investments needed
to keep up with development and the fast obsolescence of their more traditional
businesses – all the while feeling threatened by the risk (partly real) that
their innovation path is an ideal ‘culture environment’ for the growth of
their competitors.

Should the offer
of access services cease to exist on the market, this would irreparably undermine
one of the fundamental premises of the full development of digital media.
To this purpose, dmin.it believes that network operators should prepare an
offer for accessing their network’s services both in a ‘pure’ manner (‘unbundled’
mode) and in association with other added value services, such as the supply
of content (‘bundled’ mode).

According to
dmin.it, users of the broadband network should be able to request and obtain
even a basic bidirectional Internet access, meant as access space and IANA
ports. The access thus supplied should be ‘service agnostic’ therefore not
giving different priorities to the transfer of different types of information,
unless this is requested by the user; its economic conditions should not be
discriminating towards the operator’s other offers; its technical characteristics
(such as bandwidth) should fall within the range of the operator’s other commercial
offers. Moreover, operators should guarantee that services are interoperable
among themselves and, wherever possible, should try to ensure (for each offer
to customers with a higher level of QoS than that at ‘best offer’) specific
levels of QoS at the ‘peering’ points in order to maintain the ‘end to end’
characteristic of the defined level of QoS.

After the triumph
of mobile telephones, broadband is the second success story of this first
part of the new century. The two technological areas (which are partly converging)
share the capacity for their customers to connect with great efficiency and
an unprecedented ease to an increasingly wider world, in the first case in
order to exchange information and vocal messages (but not only) from any place,
in the second case to access and use information (but not only). The growth
of broadband is still mostly in its exponential stage across the world and,
even in the most economically developed parts of the world, it does not seem
to be slowing down.

This mass phenomenon,
and the consequent network effect which results in such a strong offer of
broadband, generates broadband-based services and is in turn generated by
them, and maintains the exponential, tumultuous development of access and
services, which is mediated but also pushed by an increasingly wider availability
of electronic devices for the individual use of content. Based on the ratio
between the number of PCs (about 1.5 billion) and mobile telephone numbers
in the world (about 2.5 billion), one is lead to believe that the true revolution
will be represented by the wide availability of wireless broadband and will
start with WiBro devices and, above all, with 4G, which is due to make its
commercial debut around 2009-2010.

Broadband-based
(fixed) services which, to date, have created a new business, both global
and niche, in terms of interpersonal communications (telephones and VoIP videophones,
e-mail with increasingly heavier attachments, such as photos and videos);
the wonders of the Internet, electronic trading and exchange of virtual and
physical objects, among which a relevant part is played by musical products
and streaming or on-demand videos; the countless IP-based specialised
services (video surveillance), the massive gaming on-line; B2B services.

Two characteristics
of the broadband – cheapness of access in comparison with the quantity of
data exchanged and ubiquity of delivery points which themselves become nodes
of the network – have contributed to the development of broadband and must
therefore be protected.

The increasing
integration of networks, their increasingly higher ‘intelligence’ and, finally,
the fast convergence of services on the new ‘all-purpose’ IP networks illustrate
the need to maintain an open access to all legitimate uses and to increase
technical power through public and private research and a suitably remunerated
investment by the private sector.

This is the direction
in which the European Commission is moving; thanks to the i2010 programme,
the Commission has identified digital convergence as the main growth factor
for the ICT market. The Commission has undertaken to revise the regulations
relative to electronic communications and the regulations governing the dissemination
of content online[4],
with the aim of stimulating the creation and distribution of rich and diverse
content, developing secure networks and services, protecting consumers and
maintaining the market’s freedom and accessibility.

Broadband diffusion for fixed platforms (DSL, cable, Wi-Fi) is different
than that for mobile ones (3G). Until broadband is also able to take off significantly
on a mobile platform, the scenario is dominated by fixed broadband.

Some
examples of ‘fixed’ broadband:

Europe.
According to OCSE data, at the end of 2005 broadband users in Europe (all
platforms) were close to 43 million. Whereas penetration is linked to geographical
characteristics, average income and higher or lower presence of cable networks,
the rapid increase in adoption of broadband in Europe is a constant data,
with peaks of 25-27% of users for some Nordic countries.

Japan.
The Japanese government supports network access by residential and business
users by promoting the realisation of fibre optic 100 Mbit/s connections ‘to
the home’ or mixed connections with VDSL technology on ‘the last mile’ for
speeds up to 50 Mbit/s. Coverage of great cities like Tokyo and Osaka is already
at an advanced stage.

South
Korea. This case (with a 25.4% penetration rate of
broadband in 2005 for about 51 million people) in a rapidly growing country,
both in terms of people and economy, which has been studied with attention
by the world’s operators and governments, is also founded on a constant and
exemplary government action of economic and regulatory incentive and support.
The government paid for one sixth of the costs related to infrastructures
incurred, with 1.5 million dollars for the national connection backbone of
the public sector (from which service providers can rent capacity) and contributed
more than one billion dollars in concessional loans towards the realisation
of access points and more than 700 million dollars towards research and development.
Moreover measures have been introduced which have promoted broadband competition
between cable and adsl operators. This has in turn promoted a consistent offer
of broadband services at accessible costs, the development of broadband-based
services (among which, predominantly, videogames and the VoD offer) and their
adoption by consumers (to date 60% of Koreans use the Internet daily).

China.
The very fast growth of Internet use in China and the resulting behavioural
changes is illustrated by the data relative to the take-up of online games
of the ‘massive multiple-player’ type. In the case of the world phenomenon
‘World of Warcraft”, 3 out of 7 million players/subscribers (at 14 dollars
per month) are Chinese. The use of video-on-demand and sport – also foreign
and, specifically, Italian – from broadcast and from the Internet is extremely
high. Google registers more than 210 million ‘.cn’ websites (con.cn, org.cn,
net.cn).

Italy.
With about 12% of broadband users per 100 residents, Italy is slightly below
the European average of 14.2% (France, with more than 15%, and Great Britain,
with almost 16%, register higher rates). There is an 86% ADSL cover of the
population, with about 7 million subscribers, whereas ‘cable’ (essentially
Fastweb fibre optic) reaches almost 6 million families (2005). About 70% of
residential broadband access is through Telecom Italia.

Broadband’s new frontier will be that of mobile services. 3G services
such as UMTS already enable the streaming and downloading of video content.
Thanks to 3.5G (HSDPA) technologies, even higher speeds are just round the
corner. In terms of speed, and therefore rich and innovative broadband-based
mobile services, the true revolution of broadband (any content, anytime,
anywhere) could start with the complete realisation of convergence services
between fixed network and 4G high-speed mobile networks, which should appear
on the market around 2009-2010.

As far as the present situation is concerned, WiBro, WiMax and WiFi
technologies enable access to broadband with various degrees of mobility.

A look at the rest of the world shows different experiences within
mobile broadband, which are however united by their characteristics of commercial,
if not yet technological, experimenting:

In Korea the main operators announced a partnership to supply WiBro
service to the whole country. The Korean government is hoping that WiBro will
become the mobile equivalent of DSL broadband in a country where mobile telephones
are already used by 78% of the population.

In Italy, in December 2005, Telecom Italia announced a trial
of WiBro, launched on occasion of the Turin’s Olympics, with the intention
of starting up commercial services at the beginning of 2007.

6.4Open network proposal

The proposal
arises from the principle according to which each network operator should
be allowed to develop their own digital media business according to how they
deem it to be more effective and requires them to offer the minimum level
of interoperability needed to allow the development of a horizontal market
of content offers which all Italian consumers can access.

In fact:

Operators of bidirectional broadband networks
offer access to their network’s services in bundled and unbundled mode, with
the technical characteristics of their own choice.

Any network user (either content suppliers,
intermediaries or end users) can request and obtain from a generic network
operator even basic access service to the ‘big bidirectional Internet’ (address
space and IANA port) in ‘service agnostic’ mode and, therefore, in such a
way as not to give different priorities to the transport of different types
of information, unless requested by the user. This should be offered with
such bandwidth and other characteristics as those already falling within the
range of offer of the operator and at such conditions as not to discriminate
against the operator’s other offers and/or bundles

Bidirectional broadband operators guarantee
service interoperability, agree upon and ensure (for any offer to customers
with a QoS better than the ‘best effort’) specific levels of QoS to the points
of peering in such a way as to supply users a specified QoS in end-to-end
mode.

For example,
if operator A supplies a service with a guaranteed QoS on his network, A delivers
the flow at the point of peering with the operator B with the same QoS. If
operator B wishes to do so, he can equip himself so that it can guarantee
transport with the same QoS within his network to the other end of the connection.

NB: The access
to bidirectional, service agnostic non-discriminating Internet supplied by
an operator with the same technical characteristics of his own offer (e.g.
of bandwidth, save for the fact that it is ‘best effort’), therefore represents
the minimum service which can be purchased by the user from each operator.

The creation
of closed networks with controlled web access seems to entail large implications
on the economic nature of both business models and on the competitiveness
of profiles for markets in which the company, along the Internet value
chains, operates. The technology of closed networks is contemporary
to the Internet, what is new is the development, which ran parallel to the
development of broadband, of software which can be used by suppliers of network
services, thanks to which the provenance of content and services requested
by consumers from companies offering them on the Internet (for ex. Google,
Yahoo, Microsoft, IPTV services), can be controlled, a specific connection
speed can be fixed, the compatibility with one’s own DRM system can be assessed
and, if necessary, the dissemination on one’s own network can be blocked (even
though illegitimately and at the cost of heavy intervention by the Authorities
– case VOIP in the United States).

Network operators
now have the chance to broaden their role, which up to now was limited to
that of mere suppliers of connectivity, by actively taking part in the relationship
as intermediaries between content suppliers and end users.

Thanks to the
new technologic scenario, potentially similar or identical content supplied
by companies competing on the network can be treated selectively. New business
models therefore emerge, which associate the capacity of obtaining a profit
with the distribution of benefits and the costs incurred to make the network
operative.

From an economic
point of view, the efficiency of the network is maximised whenever the financing
of the relative costs is paid by getting its users (business or retail) to
pay in proportion to the benefits enjoyed, whether these have been initially
offered for free of for payment.

Hence the problem
of guaranteeing an open transport network.

If, in
the past, there was a ‘simple’ market in that there was a single type
of exchange between seller and purchaser, the new configuration of the market
changes its nature, thus becoming ‘bilateral’. A bilateral market occurs whenever
a subject operating along the value chain manages to diversify his own income,
obtaining one part of said income from his direct customers, and the other
from the suppliers of services or goods purchased by consumers as input. The
credit cards market (operators obtaining their income both from customers
and retailers), and the advertising market (media centres getting ready for
the customer-company packets of advertising interventions on different media,
but also getting paid by the big broadcasters) are bilateral markets.

A bilateral market
can be perfectly legitimate or even competitive, but requires more attention
by regulators than a simple market.

An important
technical characteristic of the bilateral market of connectivity services
is the possibility of transforming what used to be a single network into many
more or less proprietary and more or less open ‘virtual’ networks.

What is the economic
benefit measured by an integral opening of the network, that is when the network
is the same for everyone? The enjoyment of network economies or externalities,
that is when belonging to a certain network, generates a certain benefit
for the participating party, which increases proportionally to the increase
of the size of the network itself. At community level then there is maximum
benefit whenever there is a bidirectional network reaching all potential users,
that is when such network is entirely open (no-one is or can be excluded).
This benefit can be enjoyed by both consumer and manufacturer if the network
manages to propose valid content which actually becomes a standard.

Alongside this
benefit there is another one connected with the advantages arising from belonging
to a network with more or less accentuated characteristics of closure. Both
for consumer and manufacturer benefits can arise in what we could define as
contexts of ‘specificity’; in terms of consumers, this consists in
belonging to an exclusive ‘premium’ group with services only a few can access
(for example the Apple case, in which part of the benefit enjoyed arises from
belonging to an exclusive community), whereas in terms of manufacturers this
consists in the exploitation of said condition in order to propose proprietary
integrated solutions.

As far as this
trade-off is concerned, there is an ‘optimal’ point of equilibrium between
opening and closing, both specific to each network and general. It is up to
the market to determine whether in the future there will be multiple networks
with some ‘closed’ services or whether these, as many maintain, will instead
be destined to disappear, the network benefit prevailing over that of specificity.

From an economic
point of view, therefore, when the future evolution of the market is
uncertain, it is important that a certain minimum, socially efficient level
of network opening be guaranteed; in this way the enjoyment of network economies
by the whole community can be protected. In our case this translated into
a policy according to which each operator should supply a good quality ‘service
agnostic’ Internet connectivity – by identifying the most suitable measures
–. Said policy would have the advantage of reducing or avoiding legal disputes
and ex-post antitrust actions which would inevitably arise if the network
operator tried to practice tying commercial politics consisting in
offering only packets of combined services of connectivity and content.

In terms of different
speed for different content, this is a normal commercial practice which allows
suppliers of network services to better segment demand, by offering connectivity
services of different quality. If, in this case, such segmentation
opportunity improves the profitability of the supplier of network services
and, hopefully, also the benefits for consumers, it is also open to abuse
and must therefore be subjected to careful ex-post regulation.

A formulation of a proposal relative to
the use of broadband networks is not complete if the regulations needed in
order to implement said proposal are not specified.

Italian regulations – which are linked to those of the European Community
– are currently characterised according to typology (regulations relative
to access to electronic communication networks, content transferred on the
networks, the protection of content, data privacy, competition, electronic
trading, etc…) and according to entities in charge of protection (European
Commission, Communications Authorities, Competition and Market Authorities,
Personal Data Protection Authorities, Ministry of Communications, SIAE [Society of Italian Authors and Publishers]).

In our opinion, the Italian fundamental
principles which allow the implementation of our proposal are to be found
in the Electronic Communication Code (Decree Law 259/2003, art. 4, paragraph
3)[5]; such principles can be used as
intervention criteria for a soft-regulation which contemplates an agreement
among all operators monitored by the relevant authorities.

As the responsibility for implementing the
Electronic Communication Code is shared out between the Communication Authorities
and the Ministry for Communications, ideally either the Authority or the Ministry
will have to be responsible for monitoring the agreement on open networks
and for implementing the suitable tools to put it into practice. It should
however be remembered that behaviours such as tying and lock-in,
for whichthe proposal is trying to find a ‘virtuous’ solution, can
generally also be assessed with the traditional tools of competition law by
the Competition and Market Authorities.

A first intervention could therefore be
carried out on specific aspects to be defined between the parties, which would
allow the clarification of grey areas of regulation overlap in order to achieve
truly converging regulations.

Subsequently, the supply of open network
could be included within the Electronic Communication Code, among those elements
subject to assessment as part of the procedure of authorisation of operators.

In this scenario a board for drafting, observing
and assessing the use and the openness of broadband networks should be set
up, alongside a planning board (e.g. consultation/self-regulation/soft regulation)
monitored by the authority in question, with which we propose to co-operate;
this stage should include all the industry’s main players and all the participants
in the value chain, as well as consumers.

Motivating tools should be perfected which
would ensure the participation by operators to the boards and would guarantee
the subsequent adoption of the regulations arising from the implementation
of the proposal by the participants; in this process the role played by Institutions
and the future arrangement of Community regulations on communications, which
will soon be subject to revision, will be decisive.

The existence
on national territory of a network thanks to which any offer of content can
be reached through any access point and thanks to which any access point can
be used to organise an offer of content reachable by any Italian consumer
is a central qualifying technological factor for the development of the digital
media market.

Moreover, such
infrastructure would promote the development of new and intensive relationships
between customers and suppliers which, in time, could also adopt very dynamic
communication patterns; said relationships can in turn create the conditions
which would promote a higher demand for the services offered by the network
itself, possibly even with an interest towards a new and more enhanced service
performance (e.g. up-down symmetry, semi-pro applications in ASP mode, etc…).

A growth in the
offer of distributed content (or even a widespread distribution, such as is
the case of self-produced content) reduces the importance of both great concentrations
of content suppliers, and the relative big service centres, thus reducing
the need to invest in those infrastructures which are necessary to support
this business segment. At the same time it increases the importance of broadband,
of peer-to-peer networking, of directory functions, and of the capacity to
certify the computer identity of subjects, which are all elements contributing
to enhance the network infrastructure itself.

The assertion
of a horizontal market model results in the possibility, by consumers, to
choose autonomously the preferred terminals with which to connect to the network
and use the content there available, as specified in the following chapter.
This has the positive effect of drastically reducing the need for network
operators to invest in the peripheral segment in order to subsidise the terminal
in order to acquire customers, thus improving the service’s revenue account.

Moreover, the
new business models which can be activated in a similar situation of horizontal
market can hardly be anticipated in advance, and this is a relevant element
of strength within the context. The experiences of those businesses which
will emerge successfully from this initiative will in fact probably become
points of reference which could be exported to other markets, with advantages
which can be felt throughout the entire Italian industrial ecosystem.

According to
dmin.it, the success of digital media in Italy will be facilitated
by some form of opening of the network, as outlined at paragraph 6.4, and
by the possibility, for both creators and consumers of services, to access
an open and secure form of distribution, as outlined at paragraph 5.4.

In our opinion,
transactions should be made easier, more flexible and not unnecessarily onerous.
In this sense our proposal first acknowledges the existence of new flexible
forms of payment, such as PayPal [11], the periodical direct debiting of bills
on current accounts or top-up SIM cards. Some of these payment tools also
offer interesting characteristics in terms of protection of privacy, such
as the obscuration of purchasers’ financial data to sellers and the obscuration
of information concerning the purchased goods from the financial intermediaries
of the commercial transaction between purchasers and sellers.

A particular
characteristic shared by all these forms of payment is the reduction in the
number of transactions, which carries obvious advantages in terms of costs.
The proposal is therefore based on the definition of a virtual account, which
can be supported by credit card, current account, pre-paid card, direct debit,
etc. and which is in line with the chosen form of payment, either periodical
or upon request, thus reducing transaction costs.

Any initiative
aimed at supporting the creation of a platform of content and services on
an open network cannot disregard the creation of a corresponding open platform,
possibly even in economic terms, for the recognition of said content and services
with such a degree of flexibility and cheapness as is suitable for the nature
of digital media.

According to
dmin.it, the DRM techniques which enable the management and protection
of rights also contribute to free the huge economical and cultural potential
of digital media. At the same time dmin.it is well aware of the need
to render the role of the many players co-operating to the value chains and
acting as intermediaries between artists and public more flexible. The level
of accessibility and simplicity of the procedures of recognition of the value
produced by the activities of the individual players of the value chains can
therefore contribute to significantly reduce the thresholds of adoption by
said players of the platform of content and services on an open network outlined
in the previous paragraphs. Said possibility is therefore more apparent when
the attention is focused on one particular player of the value chains, namely
the consumer.

According to
dmin.it, instead of only pursuing the path of dissuasion from illegal
use of digital media, the promotion of legal use of digital media
should also be pursued. The accessibility and simplification of the process
of recognition of the value of digital media by the consumer is one
of the main types of promotion of legality, albeit indirect. The second, more
direct form of promotion is on the other hand represented by the recognition
of the content supplied to the value of digital media by each player
in the value chains, consumers included.

The young section
of the population, which represents a large section of digitalmedia’s
target, is the most likely to adopt the technologies of production, transformation,
distribution and use of digital media, but is also the least equipped
to conclude with payment the online cycle of purchase of digital products/services.
The accessibility and simplicity of the user experience which characterise
the P2P networks of digital media distribution represent, for this
age bracket, the most efficient and efficacious alternative in comparison
with any other network of digital media distribution requiring, as
well as the recognition of the value downloaded, payment methods which are
practically impossible to satisfy (e.g. unavailability of credit card and/or
current account on which purchases can be debited online).

According to
a recent market research, in the United States the market value of micropayments
(that is, payments with value included between a few cents and about 10 dollars/euros)
will be, in 2010, around 10 billion dollars; out of the total value of e-commerce
market, credit cards cover about 85% of online payments; and about 17% of
customers using credit cards for online payments use them for micropayments
too.

In Europe, and particularly in Italy, for
various reasons the situation is very different from the USA:

widespread fear of consumers with regards to
the safety of using credit cards for online payments;

costs of commissions for traders, which are
still very high;

issuing and annual management costs for credit
cards, which are still very high.

For these reasons
in Europe and in Italy the use of credit cards as main method of online payment
for closing the cycle of purchase on a network in general is being slowed
down. It is clear how, when applied to the context of micropayments in the
absence of alternative methods, credit cards represent an insurmountable obstacle.

However, whenever
a clear characterisation of digital media with reference to their unitary
value exists, their purchase generally requests micropayments (for example,
a song on iTunes has a value of 99 cents). To break this sort of deadlock
several solutions have been studied, from monthly subscriptions (e.g. www.napster.com
and safari.oreilly.com), which aim at overcoming the psychological threshold
of the 10 dollars/euros typical of micropayments, to the introduction of pre-paid
cards. Neither solution seems to have had the success with consumers which
service suppliers were hoping for.

On the one hand,
consumers seem to prefer unitary purchases of digital media rather
than the purchase of subscriptions and, on the other, even though
pre-paid cards considerably reduce the fears of the risks related to the use
of credit cards for online payments, instead of reducing commission
costs for traders and issuing and management costs for consumers, these cards
have actually increased them.

There is then a third solution, the so-called
dialler, which consists in diverting users who intend to purchase digital
goods online towards a more expensive connection which absorbs the
cost of the digital good in question. This third solution has however been
adopted by so many fraudulent initiatives that it has now acquired a very
bad reputation both among consumers and among traders.

While it is true that the solutions adopted
so far for the problems of micropayments have not yet been adopted sufficiently
to be considered a success, some positive characteristics can however be identified:

subscriptions:
consumers do not seem to be ‘worried’ by a monthly payment of their purchases
but rather by the subscription in itself;

pre-paid cards:
consumers appreciate the effective and perceived reduction in risk of online
payments in comparison with traditional credit cards (at most they risk
the amount transferred to the pre-paid card), although they deem the card’s
issuing cost and the management of top-ups too high;

dialler:
the only positive element perceived by consumers for this payment method seems
to lie in the fact of paying the extra charge relative to the purchase of
digital goods as part of a telephone bill (either monthly of bi-monthly).

Note how, out of the three above-mentioned
solutions, those relative to subscription and dialler reduce a collection
of micropayments to a single total payment postponed in time, whereas the
solution relative to pre-paid cards is the only one which effectively deals
exclusively with micropayments.

The characteristics of the three above-mentioned
solutions to the problem of micropayments reduce, among other things, the
exclusion of the young bracket of the population from online payment
of digital goods:

subscriptions: subscriptions, which are totally similar to the direct debiting of
telephone, gas or electricity bills, are debited monthly to the credit card
or on the current account of the parents of young people who do not own either
one or the other. It is therefore obvious that the parents (or the owner of
the credit card/current account) need to define a threshold (either monthly
or annual) for their children’s online expenses;

pre-paid cards: in many cases issuing or topping up a pre-paid card does not need
to be supported by a current account. Also, as known, in the market of mobile
telephones a similar approach (e.g. top-up SIM cards) has, at least in Italy,
had a great success with consumers, thanks to the possibility they offer to
monitor expenses and for the proliferation of public services offering the
issuing and top-up services (despite the fact that, in Italy, these are the
most expensive ones). In this case too parents have the chance to fix a ceiling
price for their children, although the latter will enjoy a certain degree
of independence in terms of top-up and use of pre-paid cards. Moreover, pre-paid
cards offer more advantages in terms of protection of privacy;

dialler:
in this case, too, young people’s expenses for online purchases
can be debited to the parents’ credit card or current account (e.g. on the
telephone bill), although this solution offers less chance of controlling
expenses.

While potentially reducing the exclusion
of the young bracket of the population from the online payments for
their purchases of digital goods, all the proposed solutions have yet to meet
the success that many expected. According to Digital Media in Italia however,
said solutions feature important characteristics, the implicit value of which
is still to be discovered.

Thanks to more than 100 million accounts,
Paypal represents one of the most interesting and most successful initiatives
for online payments. Paypal current accounts are ‘supported’ by credit cards
and pre-paid cards (personal and premier accounts) or by traditional current
accounts (business accounts). Paypal is therefore a virtual payment circuit
supported by other virtual (i.e., Credit cards) or physical (i.e., current
accounts) circuits or both. For purchasers, unlike credit cards, pre-paid
cards and bank accounts, Paypal accounts do not entail any cost. For sellers
on the other hand, Paypal accounts entail associated costs, which are in any
case decidedly lower than the corresponding costs of the supporting circuits.

Paypal’s success undoubtedly resides in
the possibility it offers to access cost-free (with the exclusion, of course,
of the costs relative to the supporting circuits) local and international
ebay auctions, but also in a reduction in the risks associated with credit
card payments. Paypal employs in fact, mutatis mutandis, one of the
core principles of the protection of privacy of the SET (Secure Electronic
Transactions) initiative: it does not let sellers know the purchaser’s financial
data, even though it implements the second SET principle, which is equally
important but obviously less perceived by the average user, that of not letting
the financial intermediary know about the goods which are the object of the
financial transaction.

A big limitation of Paypal lies in the fact
that it does not solve the problem of micropayments. On that matter, the importance
of creating one or more virtual payment circuits which are supported by traditional
circuits should not be underestimated.

Dmin.it’s proposal of an open system for
the payment of content/digital goods is inevitably inspired by the previously
outlined online payment systems, from which it tries to keep some of the properties
that, together, can help to support the liberation of digital media’s economic
and cultural value.

As widely anticipated, the main objective
of an open platform for the payment of digital media is to promote their legal
use. While the illegal downloading and use of digital media remains simpler
and cheaper than their legal use, it will be very difficult to find a balance
between consumers and producers/distributors of digital media.

management of transactions carried out between
accounts with access to support circuits, either periodically or upon request

Dmin.it’s first choice of open payment platform
is the definition of a type of account which maximises its accessibility particularly
by the young bracket of the population, in the wake of the huge success of
the Payment solution to online payments.

According to dmin.it’s proposal, anyone
can open an account supported by any of the following guaranteed collection
payment tools:

traditional current account

credit cards

pre-paid card

bank direct debit (e.g. telephone, electricity
and gas bills, etc…)

electronic purses

etc..

The introduction of an account for the purchase
and sale of digital media or of any other related digital service does not
however solve the problem of costs related to micropayments, as each micro-transaction
on said accounts would in any case require a micro-transaction on the supporting
circuits.

In the dmin.it proposal, the micro-transactions
between accounts are recorded in real time, although they become periodical–
for instance, monthly - transactions on traditional circuits when,
for example, the account’s owner decides to transform said account’s balance
(whether this be credit or debit balance) by an economic transaction on the
traditional circuits. The transaction on demand could entail a higher management
cost than the natural periodical payments/collections.

Please note that a monthly payment/collection
would allow the introduction, within the circuit of the accounts of the dmin.it
proposal, of further mechanisms for the reduction of transactions similar
to those widely used by American financial Clearing Houses. These are not
however part of the current formulation of the proposal.

The introduction of accounts supported by
any payment circuit, together with the reduction in the number of micropayments
on the latter, obtained thanks to the periodic distribution of transactions
and the introduction of clearing algorithms, would by themselves be sufficient
in order to produce a significant improvement on the state of affairs with
relation to accessibility and costs of micropayments.

The proposal therefore features the following
characteristics:

An account with credit balance can have no
associated support circuit

The account can have one or more holders (natural
or legal persons)

All types of operations (collections and payments)
typical of traditional current accounts can be carried out on the account

A single natural or legal person can dispose
of an arbitrary account number

The account will feature all information about
its functions, such as those concerning movements, current account balances
and applied conditions

On the one account, all Euro credit/debit
operations from support circuits can be carried out

To each account one or more support payment
tools can be associated towards which real economic transactions in Euro can
be periodically regulated

The relationship between account and support
circuits is many-to-many

Any company can decide to offer on the market
these accounts under the economic conditions they prefer, but specifying whether
they respect the protocols established by an authority, yet to be defined,
or not

Any company can also propose itself as provider
of ‘virtual multi-banking’ services in a similar way, in terms of functionality,
as to what happens in the market of corporate banking with the so-called Application
Centres and Delegated Technical Structure.

By way of standard reference protocols for
all information and disposition flows (including the opening of current accounts),
the XML layouts of the Corporate Banking Interbancario (CBI), which have already
been adapted to the SWIFT international layouts, can be used/expanded

Movements from and to support circuits will
use the traditional protocols/layouts of the banking market and their account
rendering will be suitably highlighted, thus separating it from the account
rendering relative to normal account movements

A governance system will have to be set up
which will allow the certification of the implementations and a general register
of all participants

Policies for the protection of privacy will
have to be defined, along the lines of the above-mentioned principles of SET,
according to which sellers do not have any information about the account used
by purchasers and providers of account services do not have any information
on the reasons why payments are made out of the account.

The regulations governing electronic payment
systems such as “Paypal”, quoted as a model for the proposal, corresponds
to the ones established by Directives 2000/46/EC and 2000/28/EC of the European
Parliament and the Council, both dated 18th September 2000, on
electronic currency companies. The Directives in question have been included
in the Italian law system with suitable amendments to the Testo Unico Bancario
(TUB) (Bank Consolidating Act), approved with Law 385/93.

Art. 1 (paragraph 2, letters “h-bis)” and
“h-ter)”of the TUB includes the following definitions:

"electronic currency companies":
those companies, other than banks, which issue electronic currency;

"electronic currency": a monetary
value represented by a credit towards the provider, stored on an electronic
device, issued against the receipt of funds with a value which is not lower
than the issued currency value and accepted by way of payment by subjects
other than the provider;

Paypal is in fact registered in the United
Kingdom as an electronic currency company under British regulations, which
correspond to the TUB. This specification is extremely important, as the receipt
of funds for the provision of electronic currency does not represent an activity
of "savings collection among the public", which would otherwise
be forbidden to any subject other than banks (art. 11 TUB[6])

The provision of electronic currency is
governed by art. 114 of the TUB[7],
which provides, among other things, for electronic currency companies to be
registered under the relevant registry held by the Bank of Italy which authorises
the activities of said companies, on condition that the following requirements
are satisfied (provided for by art 114-quater and 14 paragraph 1, TUB):

the company must be a stock company or a joint-stock
company limited by shares;

bis) the registered office and the headquarters
must be within the Republic’s territory;

the paid-up capital must not be lower than
the one established by the Bank of Italy;

a programme relative to the initial activity,
together with the memorandum and the articles of association must be presented;

the holders of relevant shares must have the
requisites of respectability provided for by article 25 of the TUB and these
are the necessary premises for the issuing of the authorisation provided for
by article 19 of the TUB;

the subjects carrying out the functions of
administration, management and control must have the requisites of professionalism,
respectability and reliability provided for by article 26 of the TUB;

between the bank, or the subjects of
the group of membership, and other subjects there are no strong bonds
which would hinder the exercise of supervision functions.

A general limitation lies in the fact that
electronic currency companies cannot exercise credit activities.

The holder of electronic currency can ask
the issuing company to repay the electronic currency in legal currency by
means of transfer against a current account, or other procedure which
has been agreed upon in the contract, always subject to the obligation to
pay to the company any cost which is strictly necessary in order to carry
out the operation.

A minimum amount for requesting a repayment
within the limitations provided for by the Bank of Italy can be established.

As the purpose of this proposal is to establish
a payment system for the exclusive use of digital media, art 114-quinquies
could be applied, which provides for a ‘lighter’ regime of authorisation to
operate, at the discretion of the Bank of Italy, in case the electronic currency
issued by the company in question is accepted ‘by a limited number of companies’.

If the electronic currency which, according
to this proposal would become a tool of payments for digital media, could
be spent only and exclusively with suppliers of content and multimedia publishers
which are somehow combined into a ‘consortium’ within the system, its implementation
would be easier. In all likelihood this is what happened with Paypal-Ebay.

A further, significant reduction in financial
intermediation costs is achieved. All commercial exchanges occurring within
the circuit of accounts are not subject to the costs relative to traditional
support circuits.

Scenarios can be supported in which not only
purely passive consumers and purely active producers/distributors exist. The
phenomena of open source software, Creative Commons licences for creative
content, P2P networks, blogosphere, Pod/Video Casting and many other more
or less creative means of production and distribution of digital content of
which we are not even aware yet, show the few-to-many (or even one-to-many)
communication model is destined to be integrated, if not substituted, by a
many-to-many communication model. In a scenario in which the consumer is increasingly
less passive and more active – prosumer (producer and consumer) – the
circulation of a virtual currency which regulates the exchanges occurring
on the network is crucial.

The possibility of opening accounts enables
and motivates the young bracket of the population to use digital media legally.

Some functions already specified in chapter
5 can be realised, in particular the recognition, also in economic terms,
of the contribution of consumers to the diffusion and the success of digital
media themselves as a main incentive to the legal use of digital media.

A system of recognition, even economic, of
the value of digital media based on the principle of ‘the more you
give, the more you get in return’ is possible. To this purpose, the
added values supplied by consumers to legally used digital media should
on the one hand be specified; on the other hand said values should be quantified
in terms of economic value.

The players of the value chains can assess
in terms of money the private consumption data of those consumers who are
willing to supply them.

Similarly, the resources such as fixed memory
(hard disk space) and upload made available in P2P networks can be
recognised/paid for.

As highlighted in the previous chapters,
the proposal developed by dmin.it in a year’s work is set out in a series
of actions aimed at identifying the conditions which are ‘strictly’ necessary
but sufficient to enable the widest circulation of content through the proliferation
of opportunities of proposition and use. The proposal introduces three fundamental
novelties:

a standard national system for the management
of Digital Media and a set of regulations defining the obligations which must
be observed by the players who resell digital content to consumers through
telematic networks, cable, fibre or ether;

the opening and interconnection of the broadband
networks currently existing on the national territory, guaranteeing their
technical/economic transparency in terms of the digital content transmitted
through them;

an efficient, efficacious and flexible payment
system which can satisfy the requirements arising both from the market of
Digital Media which will develop among the sector’s large companies and professional
operators, and also from the market of retail distribution and use as well
as from the market of personal and semi-professional productions.

dmin.it is aware of the fact that, while
expressing in a conceptually complete manner all elements needed to be effective
and to achieve the desired results (i.e. allowing our country to obtain a
worldwide prominent position in terms of building an innovative model of economic
development based on digital media), the outlined proposal needs to be made
operative and, subsequently, implemented.

For this reason a series of future actions
has already been identified. First of all, the proposal should be openly
disseminated through all those economic and social contexts which may be interested
in the initiative and involved in its future implementation. This process
tends to spread knowledge and to gather consents and possibly any contributions
which could add to the strength and the strategic value of the proposal itself.

dmin.it will therefore communicate the proposal
to the competent ministries, their relevant technical bodies, to the market
supervisory authorities and to the whole political world interested in this
issue, in order to obtain wide consensus on the strategic targets. At the
same time, the debate will be spread throughout the economic and industrial
world, both its manufacturing and service side, with the aim of preparing
these entities to better exploit the many opportunities the implementation
of the proposal will create for those who can find advantages within product
and service innovation. Italian universities should not be excluded from this
informative and confronting activity. The chance offered by the revolution
of Digital Media becomes, in fact, a favourable opportunity
for refinement and enhancement by the leading thinkers existing in the university
environment who are waiting for nothing more than the chance to fulfil the
operational task of transforming the investment made in research into a practical
application working for the further development of the Country.

After having developed the information concerning
the objective and after having assessed the level of support for the initiative,
the path to be followed for the implementation of the necessary practical
actions must be clearly set out. Definition of any necessary protocols and
standards, choice of reference technologies, development of any missing components/subsystems,
guideline regulatory actions, setting up of the bodies needed to guarantee
the end success of the initiative, marketing action in terms of the idea and
the possibilities which it opens particularly for the most numerous segment,
which is perhaps the one less likely to understand the advantages offered
by the proposal, that of citizens/consumers. These are only a few examples
of the activities included in the process of operational development. In dmin.it’s
opinion, for this process to be most effective, a regulatory board should
be set up on which all the representatives of the interested parties can take
their place, and which can be co-ordinated by an institutional body provided
with decision making power.

The development of digital media is only
at the beginning and the changes it will bring to the way of life and the
customs of citizens will not be limited to entertainment but will also extend
to the use of culture, education and training, to personal relationships,
social groupings and to political commitment. This is a great innovative phenomenon
which will open astonishing spaces for economic growth to those who can support
it and exploit it. Italy, together with its people, its industries and its
economic-social system must be among the first.

Fourth-generation
mobile telephones (the 1st being TACS, the 2nd
GSM and the 3rd UMTS)

ACS

Alternative
Compensation Systems

Address space

All
possible addresses with which the devices interconnected to a network
can be identified. The address space can be private if the addressing
is valid within a single organisation, or public if addresses must be
universally univocal. As far as the Internet is concerned, a single
authority (IANA) administers the governance of addresses.

Open

This
adjective is typically associated with a technical solution and it specified
that it is public, completely specified, can be practiced from a party
other than the one that specified it, possibly through the payment of
royalties due to the intellectual property included in the specification.
Examples: Standard ISO/IEC/ITU/ETSI etc.

Attribute
of a network which makes a ‘sincere’ effort (similar to the legal concept
of “best effort” contract) to deliver all data packages in transit under
normal traffic conditions; when the network is overloaded, some data
packages could get lost, delayed or delivered out of order.

BEUC

Bureau
Européen des Consommateurs.

Bidirectional

Attribute
of a network in which data can travel in both directions

Value chain

A group of intermediaries uniting in order to realise
a business model and connected one to the other and with authors and
end users. Intermediaries subsequently carry out added value functions
to which transactions correspond

CC

Creative
Commons

CDN

Content
Delivery Network

Digital content

See Digital media

Decoder

See
Set Top Box

Holder
of rights

Natural
or legal person possessing the copyrights or the relative rights over
a content

Digital
media

Form
of creation, distribution and use of content made possible by the fact
that the content itself is expressed by means of bits which can be processed
by programmable devices and can be transmitted by various types of protocols
on digital networks

Digital
Rights Management (DRM)

A system
of computer-based components and services which aim at distributing
and controlling content and the relative rights with digital techniques

DTT

Digital
Terrestrial Television

DVB-H

Digital
Video Broadcast Handheld

Walled
garden

A set
of content and services offered exclusively to a closed set of users

HSDPA

High-Speed
Downlink Packet Access

IANA

Internet
Assigned Numbers Authority

iDRM

Interoperable
DRM

Interoperable

Adjective
typically associated with:

A content, to specify the possibility
of using that content on a device

A device, to specify the possibility
of using a content on that particular device

A network, to specify the capacity
of transferring data to another network with certain characteristics

IP

Internet
Protocol

IPTV

Internet
Protocol Television
The
supply of television services, for example broadcast television and
pay-per-view, Video-on-demand (VOD), interactive TV and the associated
applications, realised on a broadband IP bidirectional network connected
to a dedicated set-top box.

NGN

Next
Generation Network

OSS

Open
Source Software

Peering

Operation
with which different access or, generally, Internet connectivity operators
connect their own networks. It represents the procedure thanks to which
the different operators recognize each other’s equal status (literally:
‘relationship among equals’)

P2P

Peer-to-Peer

Platform

IN the
distribution of contents: set of hardware and software devices thanks
to which contents can be sent, received or used

Pay-per-view
(PPV)

Pay
service which allows a user to use single content upon payment

Protection of content

see
TPM

Quality of Service (QoS)

Characteristic by which a network can transmit data
with predetermined characteristics

SET

Secure
Electronic Transactions

Simulcast

The transmission of the same content with different
characteristics (for example resolution) or on two different transmission
systems

Alternative
retribution systems

Method
of retribution of holders of rights other than direct economic retribution

STB

Set
Top Box

TPM

Technical
Protection Measure
Any
technology (encoding, watermarking etc.) aimed at preventing or discouraging
the use of content to people without authorisation

UMTS

Universal
Mobile Telecommunication System

Venture Capital

A financial
company which makes investments, especially towards fast-growing companies
which however require a high level of capital

Work for hire

Intellectual
work which should originate rights for those who are engaged in it but
which instead reduces to simple salaried work

[1] In this document "digital media" means any content expressed
by means of digital techniques which can be carried over digital and processable
networks by means of programmable devices.

[2] I.e. substantiated
by a contract in which the agreement is sanctioned by a legally binding
type of exchange of consent between the parties (See E-commerce directive
2000/31/CE, implemented in Italy by Decree Law 70/2003).

[3]Worthy
of notice, among recent cases, is the one of Justice of Peace Imperia (see
http://www.interlex.it/testi/giurisprudenza/im06398.htm ), who passed a
sentence (Sentence n. 398 of 30th June 2006) against Sky Italia
for damages in favour of a user who complained he could not use universal
devices (Common Interface) to access the Sky offer. Thanks to the proposal
in question this type of controversy, which seems to be on the increase,
would be solved at its roots.

[4]On this matter, on 13th December 2005 the Commission proposed
an Audiovisual Media Services Directive, by way of reform of the current
‘No frontier TV’ Directive. See http://ec.europa.eu/comm/avpolicy/reg/tvwf/modernisation/proposal_2005/index_en.htm

[5] Italian
regulations on data transport networks are mostly included within the Electronic
Communication Code, art. 4: “The regulation of networks and services of
electronic communication is aimed at protecting, in obedience to the principle
of free circulation of people and things, the constitutionally guaranteed
rights to a) freedom of communication; […] e) promoting the development,
in a competition system, of networks and services of electronic communication,
including the ones related to broadband, and their diffusion at national
level, thus promoting social and economic unity, even at local level; f)
guarantee a flexible access and interconnection for broadband electronic
communication networks, by considering the types of service, the means of
ensuring sustainable competition, innovation and advantages for consumers;
g) guarantee the convergence and the interoperability among electronic communication
networks and services and the use of open standards; h) guarantee the observance
of the principle of technological neutrality, meant as non discrimination
among specific technologies, non imposition of the use of a particular technology
instead of others and the possibility of adopting reasonable measures in
order to promote certain services independently from the technology used.”

[6] By savings
collection is meant the acquisition of funds with an obligation of repayment,
either by means of deposits or any other form. Savings collection among
the public is forbidden by anyone other than banks.

The receipt
of funds in connection with the issuing of electronic currency is not considered
to be savings collection among the public.

[7] The issuing
of electronic currency is reserved to banks and electronic currency companies.
Said companies can only carry out the activity of electronic currency issuing
by immediately transforming the funds received. Within the limitations established
by the Bank of Italy, the companies may also carry out associated and instrumental
activities,

as well
as providing payment services; the granting of any form of credit is in
any case prohibited.

The Bank of Italy records in an
appropriate register all Italian electronic currency companies and the subsidiaries
in Italy of the electronic currency companies with registered office in
a country belonging to or outside the European Community.

The holder
of electronic currency has the right to ask the issuer, according to the
procedures specified in the contract, the repayment at nominal value of
electronic currency in legal currency, that is by means of a deposit on
a current account, by paying the issuer any cost which is strictly necessary
in order to carry out the operation. The contract can provide for a minimum
limit of repayment which should not exceed the amount provided for by the
Bank of Italy in conformity with communitarian regulations.